Market observers pointed out that investors were also rattled by a downward revision in the country's GDP growth rate to 7 per cent from 7.2 per cent in 2019-20.
Besides, a new default in the NBFC (Non-Banking Financial Company) space also hurt the investors. Reports indicated that Dewan Housing Finance Corporation Ltd (DHFL) had missed interest payments due on Tuesday, following which rating agencies ICRA and CARE downgraded DHFL's commercial paper worth Rs 850 crore as "default".
Consequently, the BSE Sensex closed 553.82 points or 1.38 per cent lower at 39,529.72 points, while the NSE Nifty50 was down 177.90 points or 1.48 per cent at 11,843.75 points.
While almost all sectoral indices ended in the red, particularly impacted were the interest rate sensitive stocks such as banking, automobile and capital goods.
Additionally, stocks with exposure to DHFL came under selling pressure even as its NCDs fell sharply after rating agencies downgraded its credit rating to "D".
"We are bound for some correction in the short-term post the in-line measures of the RBI which was well-done, acknowledging the worries in the economy," said Vinod Nair, Head of Research, Geojit Financial Services.
"No specific comment regarding the ongoing NBFC crisis was made which came as a surprise while delay in monsoon added to the fear."
According to Deepak Jasani, Head of Retail Research, HDFC Securities: "The markets sold off on Thursday post disappointment after the RBI MPC Credit Policy did not announce any immediate measure to tackle the liquidity issues faced by the stressed NBFCs. Investors were also disappointed over the lower than expected rate cut."
The RBI on Thursday lowered its key lending rate for commercial banks by 25 basis points (bps) to 5.75 per cent, the lowest in the last nine years.
Besides, the RBI also changed the monetary policy stance from neutral to accommodative. The significance of such a move can be gauged by the fact that the RBI has reduced its growth forecast in 2019-20 to 7 per cent from 7.2 per cent.
In terms of investment, both foreign and domestic institutional investors (FIIs/DIIs) sold stocks. FIIs off-loaded stocks worth Rs 1,448.99 crore, while DIIs sold stocks to the tune of Rs 650.84 crore.
( With inputs from IANS )